pizza express case study v1

Pizza Express Six Sigma Case Study

Pizza Express Case Study (v1) Page 1

Pizza Express

A Six Sigma Case Study

September 5, 2007

Peter J. Sherman Certified Six Sigma Black Belt ASQ Certified Quality Engineer

www.sherman6sigma.com (678) 595-7942

No part of this paper may be reproduced or transmitted in any form or by any means, electronic, photocopying, or otherwise, without the express written permission from the author.

Sherman Consulting Inc.Driving End-to-End Process Improvement

SMSherman Consulting Inc.

Driving End-to-End Process ImprovementSM

Driving End-to-End Process ImprovementSM



The following Six Sigma case study is designed for small / medium sized business owners to understand the Six Sigma methodology and to apply the basic concepts and tools in their own business. The case involves a typical small business a pizza delivery company experiencing unexpected financial losses and declining customer service. The primary objective for the reader is to identify and define the core issue(s), appropriately measure, analyze and suggest specific improvement approaches to overcome the operational issue(s) using the Six Sigma DMAIIC process: Define, Measure, Analyze, Improve, Implement, and Control. The reader is expected to use the information contained in the case and make reasonable assumptions where needed. A solution guideline is available.

Peter J. Sherman is an ASQ Certified Quality Engineer and a Certified Six Sigma Black Belt. He has 20 years experience, including serving as Sr. Black Belt for AT&Ts Product Development Group. Mr. Sherman has led Six Sigma initiatives across Product Development, Sales, Fulfillment, Installation, Customer Support, and Billing. He began his career in quality management working in Japan as a visiting M.I.T. Scholar in 1986-87 and is currently lead Instructor at Emory University's Six Sigma Certification Program in Atlanta, Georgia. Mr. Sherman has been published in various journals including iSixSigma and Solutions (part of Journal of Financial Planning) and is the recipient of the 2007 Quality Excellence for Suppliers of Telecommunications (QuEST) 8th Annual Best Practices in the Six Sigma category. Mr. Sherman received his Master's in Engineering from M.I.T. and has an MBA from Georgia State University. Mr. Sherman is a member of the ASQ and ISSSP.



Background:

Pizza Express is a successful pizza delivery business located in Dunwoody, GA a small suburban community of middle-income families in Atlanta. Larry Jones, the owner, has been in business for more than 6 years. Pizza Express enjoys a excellent reputation for making quality pizza at competitive prices with fast, convenient delivery service.

Larry was a former Manager at Dominos for several years and knew the business well. When he opened his delivery pizza business, he installed the best ovens and equipment, sourced the highest quality food suppliers, and thoroughly trained the staff. Larry knew the key to success in the pizza delivery business was to deliver the pizzas very quickly once they came out of the oven so that they are hot and fresh when delivered. Pizza Expresss policy was to guarantee delivery of your pizza in less than 30 minutes from placing an order. If not, Larry discounted the pizza 100%. The policy worked and the business grew steadily and rapidly (see Financial Summary). The business was highly profitable with 24% Operating Margins!

Operations:

The key to Larrys fast delivery service and profitability was delivering the pizzas in batches of 4-5 orders since most customers were located in close proximity to each other. Larry kept the business simple Pizza Express only made and delivered pizza unlike the other chains offering a greater menu variety including pastas, salads and soft drinks. While the menu was limited, customer satisfaction was extremely high. The staff consists of 1 Pizza Chef, 1 Receptionist and 2 Drivers. The chef served as an apprentice to Larry during the 1st year and learned the art of preparing and baking pizzas. Larry carefully designed the order taking process and made sure the receptionist consistently repeated the customer name, address, telephone number, order and price to minimize mistakes. The Receptionist took orders, dispatched the drivers, and collected the cash from the drivers. The Chef and Receptionist have been with Larry since 2001, while the drivers generally had a much higher turnover. The Drivers were generally younger men who drove their own vehicle. Larry paid the drivers a base wage plus mileage reimbursement. Drivers had an incentive to make quick deliveries from the extraordinarily good tips from customers. All drivers were given maps. Larry handled overall supervision, purchasing, payroll, and training. Marketing had historically been via word-of-mouth. Larry was proud of the fact that he never spent a lot of money on advertising and marketing.

Current Situation:

While Larry was satisfied with revenues and income, he knew the operation was not being fully optimized. With the current facility and staff, Pizza Express could easily increase its pizza production by 50%. So, in January 2007, Larry expanded the menu to include calzones and manicotti and high-margin soft drinks. Larry also invested in advertising through newspapers and radio in Dunwoody and the surrounding communities. The results were almost immediate. The advertising generated a significant increase in orders. In fact, Larry added a 2nd rollover telephone line and took orders himself.

While orders surged 49%, Larry was surprised to see the 2007 mid-year financial statement showed a loss ($4,579) the companys first loss since inception. Larry was receiving significantly more complaints including improperly cooked food, wrong orders, late deliveries and cold pizzas / food. So, in July 2007, Larry called an emergency meeting with his entire team to figure out why profits and service had declined so rapidly and to correct it as soon as possible. He had to move quickly before customers would switch to the competition.



Key Financial and Operational Data

2001 2002 2003 2004 2005 2006 2007 thru JuneRevenues $150,000 $217,350 $301,000 $407,000 $505,050 $567,280 $460,906

Operating CostsSalaries $47,840 $49,036 $50,262 $67,279 $68,961 $70,685 $36,226Owner's Comp. $0 $20,000 $50,000 $65,000 $100,000 $125,000 $62,500Ingredients1 $52,500 $75,338 $100,800 $135,050 $166,985 $184,873 $178,719Marketing $250 $500 $600 $600 $650 $650 $25,000Supplies2 $3,750 $5,250 $7,280 $9,620 $12,126 $13,169 $18,813Rent $10,000 $10,250 $10,500 $10,750 $11,000 $11,250 $5,750Mileage3 $3,000 6,300 8,400 11,100 18,200 20,260 33,863 Vehicle Maintenance $400 $560 $640 $1,000 $1,150 $1,250 $5,250Utilities / Janitorial / Maint. $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $2,000Insurance $1,000 $1,000 $1,000 $1,100 $1,100 $1,100 $575Refunds4 $150 $326 $602 $611 $808 $1,135 $96,790

Total Costs $122,890 $172,560 $234,084 $306,110 $384,980 $433,371 $465,485

Operating Income $27,110 $44,790 $66,916 $100,890 $120,070 $133,909 -$4,579% Profit Margin 18% 21% 22% 25% 24% 24% -1%

1 Cost of Goods Sold (primarily ingredients) was historically 35% of the average $10 retail pizza price.2 Supply costs historically averaged $.25 per pizza (cardboard boxes, plastic utentils, napkins, and office supplies). 3 Drivers are paid $0.20 per mile for deliveries. Mileage has historically been 3 miles per delivery.4 Late deliveries have historically averaged 0.17% of total pizzas. Customers are refunded in full for late deliveries.

Labor 2001 2002 2003 2004 2005 2006 2007 thru JuneChef (currently $13 per hour) $20,800 $21,320 $21,853 $24,960 $25,584 $26,224 $13,440Receptionist / Cashier ($9.15 per hour) $15,600 $15,990 $16,390 $17,680 $18,122 $18,575 $9,520Driver ($6.38 per hour) $11,440 $11,726 $12,019 $12,320 $12,628 $12,943 $6,633Driver ($6.38 per hour) $0 $0 $0 $12,320 $12,628 $12,943 $6,633Total Salaries $47,840 $49,036 $50,262 $67,279 $68,961 $70,685 $36,226

Key Metrics 2001 2002 2003 2004 2005 2006 2007 thru JunePizzas Per Year 15,000 21,000 28,000 37,000 45,500 50,650 37,625 Pizzas Per Week 288 404 538 712 875 974 1,447Pizzas Per Day 41 58 77 102 125 139 207Avg Price Per Pizza $10.00 $10.35 $10.75 $11.00 $11.10 $11.20 $12.25

Incremental Pizzas 6,000 7,000 9,000 8,500 5,150 24,600 % Growth in Pizzas 40% 33% 32% 23% 11% 49%



Sampling of 100 customer complaints in the past 6 months

Complaint FrequencyWrong Order 9Late Delivery 31Food Returned - Not Prepared Properly 8Incorrect Bill 5Wrong Address 7Food Not Fresh and Hot 34Miscellaneous 6

TOTAL 100

Sampling of Delivery Times

Data Type: Delivery Times (Variable)Source: Customer Database

Format: see below

Sample No.

1 20 25 282 90 20 253 25 90 204 20 28 305 115 20 256 30 27 187 60 110 258 21 18 759 30 21 27

10 22 60 20

Sub-Group (Minutes to Delivery Pizza)

pizza express case study v1

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